Which of the following is not correct?
A)If the inflation rate exceeds the nominal interest rate,then the purchasing power of an interest-earning deposit falls over time.
B)If there is deflation,then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time.
C)The higher the rate of inflation,the smaller the increase in the purchasing power of an interest-earning deposit.
D)The purchasing power of an interest-earning deposit can increase or decrease over time,but it cannot stay the same.

Question

Quizplus · Accepted Answer

The statement "The purchasing power of an interest-earning deposit can increase or decrease over time but it cannot stay the same" is not correct. Inflation or deflation can cause the purchasing power to decrease or increase respectively, but if the nominal interest rate is equal to the inflation rate or if there is no inflation/deflation, the purchasing power can remain the same over time.

Which of the Following Is Not Correct